Credit Cards

Tips, news, reviews, caveats, trends, updates and analysis related to consumer and business credit cards, and prepaid debit cards. From the interest rate specialists @ FedPrimeRate.com

Friday, September 09, 2005

Read Those Balance Transfer Details Carefully: Not All Balance Transfer Deals Are The Same...

Over the past year or so, I've been coming across consumer complaints about the customer service provided by MBNA for their credit card account holders. Yesterday, I found a complaint on the complaints.com website, posted by a gentleman in Wyoming, about an MBNA credit card balance transfer deal that didn't go well. Basically, MBNA imposed a balance transfer fee of $75 on this gentleman's transferred balance, but, instead of posting the transfer fee after the interest-free period ends, MBNA posted the $75 charge to his account right away! I can understand why this gentleman was angry: charging a balance transfer fee to an account right away is not standard practice, and it can translate to some nasty fees being charged each and every month.

The situation described above can be particularly vexing because, as you might already know, many credit card companies will apply your monthly installment payments to your transferred balance(s) first. This means that any new purchases (which sometimes includes fees) will be subject to interest charges (unless you were able to secure a superior balance transfer offer that charges no interest on balance transfers, cash advances and new purchases.) So if, for example, you were to transfer $5,000 to a new credit card via a balance transfer deal, and the deal included a balance transfer fee of $75, then you may find yourself paying interest on that $75 right "off the bat." And because installment payments are applied to transferred balances first, the only way to stop those monthly interest charges from being charged as a result of that $75 fee would be to payoff the entire credit card balance in full--including the $5,000 you transferred! Credit card companies know that most folks can't afford to pay off their entire account balance whenever they please, so this is just another way for them to profit off of your debt.

I personally learned a hard lesson early in 2004, when I transferred a balance to a credit card account that had already been open for some time, but was offering an attractive 0% balance transfer deal (at that time, I owed nothing on that credit card, and the "go to" rate for this deal was a very reasonable 7.9%.) I transferred a relatively large balance, and everything was going great for the first 2 months, until I noticed that I was suddenly and unexpectedly being charged $1.50 in interest. You may be thinking that $1.50 is no big deal, but to me, a 0% deal should be just that: 0%! When I called my credit card company to find out why I was being charged interest, they told me that I had made a $35 purchase on my credit card that month, and that new purchases were subject to interest charges. This didn't make any sense to me, as I had avoided using this particular credit card for new purchases, knowing full well that I would get slammed with interest charges if I did. Well, I was in fact "in the wrong," as I later discovered that the $35 purchase was an automatic payment made to EZ Pass (EZ Pass is a system that gets you through highway tolls very quickly; instead of waiting in long lines to pay highway tolls by cash, you get to zip through tolls, paying with a EZ Pass electronic tag.) I had totally forgotten that I had used this particular credit card for automatic billing, and got snagged!

So, you balance transfer surfers: read those details thoroughly! Credit card companies are starting to get tired of losing profits with all the zero percent balance transfer offers they've been "forced" to offer ("forced" in order to remain competitive within the market.) Many are starting to charge balance transfer fees of around 2-3% with a ceiling of $75. Of course, even with a $75 fee, a balance transfer can still be a great deal for anyone carrying large credit card balances, but make sure you find out when and how those fees will be charged.

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